TOKYO—Japanese government bond yields fell to fresh seven-year lows as investors increasingly bet that the Bank of Japan may be forced to act against the strong yen and support the slowing economy.
Several local media outlets reported that Prime Minister Naoto Kan and BOJ Gov. Masaaki Shirakawa will meet on Monday to exchange views on recent currency-market moves.
The meeting would follow the greenback's slide to a 15-year low of 84.72 yen last week, a headache for the export-reliant economy. In addition, the economy barely expanded during the April-June period from the previous quarter. This fueled speculation that the central bank will be forced to ease its already easy monetary policy in the near term, which would bring down bond yields, analysts said.
"The greatest concern for JGB investors is whether the BOJ will loosen its policy further, and I'd say the chance is increasing," said RuiXue Xu, a rates strategist at RBS Securities Japan.
The benchmark 10-year yield briefly fell to 0.92%, its lowest point since August 2003, before ending the day at 0.935%, down 0.01 percentage point. Ms. Xu said her firm forecasts the yield will fall to 0.80% by the end of September.
Analysts also say Japanese yields could fall because of high demand for the U.S. Treasurys. The two assets are closely correlated, and the 10-year U.S. Treasury yield touched 2.570% Monday, its lowest level since March 2009. Prices and yields move in opposite directions.
Yields of other maturities hit seven-year lows. The five-year yield fell to 0.265%, its lowest since June 2003, before ending at 0.27%, unchanged on the day. The 20-year amd 30-year yields also set new seven-year lows.
